tv Nightly Business Report PBS September 13, 2012 7:00pm-7:30pm PDT
>> this is n.b.r. captioning sponsored by wpbt >> susie: good evening. i'm susie gharib. tom is off tonight. patience pays-- stocks soar as ben bernanke and the federal reserve launch a new round of stimulus to boost the economy. but will that strategy, known as q.e.-3, work? we ask former fed governor randall kroszner. that and more tonight on nbr! the federal reserve announced today a bold plan to spend billions of dollars to buy bonds to rev up the u.s. economy and create more jobs. on wall street, investors applauded the move and stocks surged. as policymakers wrapped up a two-day meeting, they said they took this action because, without it, economic growth might not be strong enough to create jobs. but the fed's latest round of quantitative easing, what everyone calls q.e.-3, is different this time.
the fed will buy mortgage backed securities rather than u.s. treasuries. it will buy $40 billion per month. more importantly, the fed said the buying is open-ended-- it promised to keep buying until the job market "improves substantially." and the fed pledged to keep interest rates "exceptionally low" through 2015. stocks rallied right after the fed announcement. the dow jumped 206 points, the nasadaq rose 41.5, and the s&p added 23 points. fed chairman ben bernanke described today's move as "a main street policy." darren gersh reports. >> if you are unemployed or worried about keeping your job, the federal reserve today had a clear message for you-- "we're here to help." federal reserve chairman ben bernanke explained the central bank's decision to take the aggressive and innovative step of launching an open-ended program to buy up mortgage securities. the idea bernanke said is to bring down interest rates on mortgages and other loans even
further in a bid to shake the economy out of its rut, and make sure high long-term unemployment does not become a permanent feature of the american economy. >> this is a main street policy, because what we're about here is trying to get jobs going. we're trying to create more employment, we're trying to meet our maximum employment mandate, so that's the objective. >> reporter: bernanke and his colleagues may have been slow to get here, but supporters of a bold approach say the fed did what was needed. >> the fed, normally, it's view is to take away the punchbowl as soon as the party gets started. they said, "we're not doing that. we want to get this party started." >> reporter: federal reserve policymakers also released updated projections showing they don't expect the unemployment rate to get back to normal until sometime in 2015. that suggests the fed could be buying bonds for a long time. former fed economist roberto perli expects q.e.-3 to run for another six to nine months. >> going forward, the important thing to figure out will be, when will the fed stop? and so, the focus of everybody in the market will be squarely
on the employment numbers, the unemployment rate, the labor market in general. >> reporter: an open-ended commitment to buy bonds is not without risks for the fed. the romney campaign released a statement calling q.e.-3 a bailout for president obama's poor economy. some economists argue bernanke is risking another outburst of inflation when the economy turns around. bernanke says the fed's research shows that's a manageable concern. the bigger fear he sees is that the economy will stumble along indefinitely. >> we're not going to be premature in removing policy accommodation. even after the economy starts to recover more quickly, even after the unemployment rate starts to move down decisively, we're not going to rush to tighten policy. we're going to give it some time to make sure the recovery is well-established. >> reporter: bernanke says businesses will also be more willing to spend and invest if they know the federal reserve is fully committed to getting the economy moving again. darren gersh, nbr, washington. >> susie: joining us now with more analysis, randall kroszner,
former governor of the federal reserve, and now professor at the university of chicago booth school of business. randy so, great to have you on this important day to get your take on the fed. tell me, do you think that the fed did the right thing if you were still work at the fed, would you have voted for this? >> boy, this is a really tough call, i think. because the economy certainly is not improving. and the fed is trying to do more. but there's so many other headwinds besides just what the fed can do. i mean the chairman talked about this in the press conference today. a lot of things that are outside of its ability to change. things like on uncertainty in europe, the fiscal cliff and uncertainty. i think it's very important that the fed make it clear that it is there to take out the risk of de flation or downside risks. but it's a little bit unclear how much help this can be going forward dchblt some help but i don't know how much. >> susie: well, that is the
key question, isn't it? will this work? what do you think? >> and so i think as the chairman described in his jackson hole speech looking at the academic research, it does seem like these kinds of policy does help to reduce interest rates. you can see just in today's actions, mortgagebacked security rates started to go down which would lead to lower mortgage rates which will lead to greater affordability of housing, new people coming into the market will be able to buy houses more easily. other people will be able to refinance. that will support that market so that will be helpful. but is that really going to be enough to get us going? >> i think it's the foundation for recover but gosh i think fiscal actions and a lot of other actions need to take place to really get the economy on a sustainable growth path. >> you know, chairman bernanke was talking a lot about doing this for the sake of creating jobs and for improving the labor market. do you think that this new program will impact the way c.e.o.s make business
decisions, the way that they make hiring decisions? >> well, i think one of the key things they were trying to do was an open-- when they are buying security these it is open market. when they are just talking about what they will do in the future that is trying to change expectations that is sort of open mouth so what he was trying to do was give more confidence that the fed is going to be there to make sure that things don't go wrong that if businesses want to hire, if people want to spend, that the fed is not going to take the punch bowl away too early this is the mistake in japan when they undertook quantitative easing practices they bought a lot of securities but it's done hardly any good because they kept saying we are going to take it back at the first sign of recovery. chairman bernanke clearly today and the fo m.c. very clearly said we're going to be there and providing support even as the recovery begins. >> you know, when will we know if this program is working, that the federal reserve should stop buying bonds. it seemed like the fed rass
tying a lot of its decision on that, to how the job market performs. are we looking at some metric, the unemployment rate getting down to 7% or 6% or lower? if you were inside the fed what do you think that they are thinking as the end point? >> well, i think there's no one particular number because this month the unemployment rate came down. but not for good reasons. it's because there were a lot fewer people who were looking for word. there were so many discouraged workers out there usually you think of the unemployment rate coming down that actually wasn't good news this past month. you don't want to look at any one number that could be misleading. you want to look at the broader set of things, how are different sectors of the economy doing, are we seeing job growth in a lot of different areas. those are the kind of broader things and qualitative things i would want to look at and the chairman made it clear that is what they are looking at, in the one particular number. >> very complicated situation. thanks for all your insights, really appreciate it, randy.
>> great to be here. >> and we've been speaking with randall kroszner, and professor at the university of chicago booth school of business. our next guest says, with the fed keeping interest rates so low for so long, this is not the time for investors to over- anchor their portfolios in cash. he's charlie reinhard, deputy chief investment strategist at morgan stanley smith barney. hi, charlie so, are you saying that investors should take the cash out of their mattresses and put it into the stock market? >> well, that's one of the places where it should be. we're recommending that they have balanced portfolios, that for moderate risk investors consist of global equities, global bonds. a little bit of cash and other investments as well. >> you know, a number of market strategists were saying that with these drastic moves that the fed is making it gives the sense that the economy is not in such great shape. so maybe this is a time to get out of stocks, what are your thoughts on that?
>> well, there is an old saying on wall street which is don't fight the fed. and the fed is clearly trying to lay out accomodative conditions so that people will take on a little bit more risk. remember, the sequence of events is first you get the policy response and then you get the reaction in markets. and if it's pronounced and strong enough then ultimately you see a revival in economic growth. but that is the sequence. >> so what kind of portfolio moves are you making if your firm for your client and what are you suggesting investmenter does right now? >> in late august we thought that it was time to put a little more risk into the portfolio so we reduced our exposure to cash and to some other diversifiers and increased our exposure to global equities, european equities in particular. we also nudged up our exposure to investment grade bonds and securitized bonds like the mortgage-backed securities the fed plans to purchase.
also we nudged up our exposure to high-yield bonds and emerging market debt where we also think the cents lee will do well. >> you didn't mention anything about treasuries, time to bail out of threshries for sure now? >> well, we actually don't think that treasuries offer a very good value right now. the yields are very low. they're probably not yielding enough to outearn inflation over the long run and in this yield challenged world we're finding other opportunities to create some productivity in the portfolios. >> these last couple of months everybody has been on fed watch waiting to see what ben bernanke and other policymakers were going to do. now that this announcement has happened what is the next big issue that investors will be looking to s it the presidential election? is it earnings, what do you see as the next thing? >> sure, a lot of investors are focused on the election. the polls suggest that it's pretty close, too close to call right now. and the first debate is on october 3rd. and of course we have a
pending fiscal cliff which we don't think will actually take place. we think sometime after the election, that the fiscal cliff will be addressed and not all of the fiscal drag will take place, rather than say five percent of gdp it will be reduced to more like one to two percent of gdp. but that has people's attention in part because when we think about some of the conditions that are creating uncertainty and what can be done about it, we make a list of those items, additional fed ease is more towards the bottom of that list and fiscal policy is closer to the top. >> all right, we'll leave it there. charlie, thank you so much. charlie reinhard deputy chief investment strategist at morgan stanley smith barney. >> reporter: i'm diane eastabrook in chicago. still ahead, i'll tell you how companies are making a game out of manufacturing to recruit young talent. >> susie: fresh economic data out today suggest the medicine the fed delivered today is justified. surging energy costs pushed
prices at the wholesale level to their biggest monthly boost in three years. producer prices rose 1.7% in august. energy prices accounted for 80% of that jump. meanwhile, more weakness in the labor market. new claims for jobless benefits touched a two-month high, rising 15,000 in the past week. striking teachers in chicago will soon be back at work. after four days on the picket line, the city's teachers union is expecting to reach a deal as early as tonight. but the union chief says it might not be until monday when students return to class. the teachers went on strike early monday as the city pushed to link teacher performance evaluations to student test scores. chicago is the country's third largest public school system.
>> susie: as the fed tries new strategies to boost hiring, so are american manufacturing companies. they're experimenting with ways to remake their image in an effort to attract younger workers. the industry is losing many veteran workers to retirement, so it's looking to high schools for future recruits. and as diane eastabrook reports, that means speaking to teens in ways only they understand. >> now, maybe try to drag the ball down and touch that little peg there. >> reporter: next to food, nothing grabs a teen' s attention like a video game. >> so you can get that gripper in any orientation that you want to pick up some type of object. >> reporter: at the international manufacturing technology show in chicago, companies like fanuc robotics are showing kids like kenny suchy that factories aren't all grease and gears; they can be cool places to work. >> it was interesting. i really liked how it was super
simple and pretty easy to learn. >> reporter: the national institute for metalworking skills, or nims, is sponsoring the student skills center at the show to get teenagers excited about careers in manufacturing. >> you're going to start at one end here, and you're going to lay down a weld beam all the way across to the other end. >> reporter: at the lincoln electric booth, kids don welding masks and learn how to wield a so-called "virtual blow torch." >> so if we hit the score button here, you can see that he got a 47% out of a hundred. >> reporter: at a time when the nation's unemployment rate tops 8%, u.s. factories have more than a half-million openings for precision manufacturing jobs. the industry's problem-- an aging workforce and not enough young people with the right skills or interest in manufacturing. nims executive director james wall wants to change that. >> everything is computer-based and really an exciting and challenging place to work. manufacturing has changed dramatically from what it was
even five or ten yeas ago. >> reporter: some students are literally taking the ball and running with it. liam burke demonstrated a robotic basketball player he and fellow students designed at aviation high school in seattle. >> we have industrial sims on our drive base that actually have a super shifter, so we can shift from a high speed to a low torque, and then to a high torque so we can push about 300 pounds across the floor. >> reporter: the demonstrations impressed some students. >> that thing over there that was throwing balls into the hoops was pretty cool. >> when i got here today, i wasn't thinking about it, but after seeing what i seen today, it's enlightened me. >> reporter: nims hopes this bit of razzle dazzle will help spark interest in an industry that desperately needs young workers. diane eastabrook, nbr, chicago. this just in the house of representatives passed a bill that would avoid a government shutdown at the end of this month t passed overwhelmingly and will go to a senate for a vote next
week. the bill known as a continuing resolution or cr would fund the federal government at a slightly higher level for six months. that would get lawmakers past the election and give them time to come up with a more permanent agreement on federal spending. -- on wall street today, a red hot rally for the blue chips on that news of the fed's big bond buying program. the dow and the s&p 500 surged to their highest levels in nearly five years. the nasdaq hit its highest mark since 2000. all ten sectors in the s&p 500 rose, but the biggest gainers
were financials and commodities. both jumped 2.5%%. energy climbed nearly 2%. financial stocks led today's rally. bank of america, j.p. morgan, citigroup, and wells fargo all rose more than 3.5%. financials are now the biggest sector gainer in the s&p 500 this year. commodities also rose sharply on optimism the fed's actions will boost demand for raw materials. dow component alcoa closed up nearly 3%. but that's nothing compared to the more than 12% gain in coal supplier alpha natural resources. it was the biggest gainer in the s&p 500. investors in that stock are betting china's economic stimulus plan will boost demand for coal used in steel making. alpha has been on a tear, rising nearly 20% since friday. now on to a potential european merger that wall street is watching closely. as we told you last night, the parent of airbus, eads, and b.a.e. are in talks to create the worlds biggest aerospace
company, with roughly $90 billion in sales a year. you might think that would be bad news for rival boeing, but shares of that firm rose nearly 1% today after boeing's chief executive said he's not threatened by the possible merger. and some analysts agree with him. >> my opinion is that it's going to have limited to no impact on the u.s. defense contractors or, in specific, boeing which would be the most similar to the new entity if it goes forward. >> susie: but shares of northrop grumman edged down 1%. u.b.s. downgraded the stock to "sell," saying it has more exposure than other defense contractors to declining military spending. a good day for apple investors today. the stock stands at a new record high of almost $683. the shares gained 2% today on more enthusiasm about the new iphone 5. as you are probably well aware, apple unveiled its newest iphone yesterday. the device has received almost universal praise.
and there are expectations that first-week sales will be the best of any iphone yet. now, let's switch focus from stocks to other types of investments, which also had big moves in the wake of that fed announcement. treasuries sold off sharply early on, but eventually reversed course. the benchmark ten-year note rose 11/32nds to 99 5/32nds. the yield, which moves in the opposite direction of price, fell to 1.72%. but gold soared over $38 to $1,772 per troy ounce, hitting its highest level since february. investors are worried the fed's stimulus program will push up inflation, and precious metals are a hedge against that. crude oil hit a four-month high, creeping toward that $100 a barrel benchmark. buyers are hoping an improving global economy will lead to rising demand for energy. and finally, spdr financials and emerging markets e.t.f.s posted
the sharpest gains among the e.t.f.s most actively traded. and that's tonight's "market focus." facebook today launched a new advertising platform, the facebook exchange. it helps advertisers better target potential shoppers by tracking their visits to sites outside of facebook. for example, users researching cars will be greeted by car ads when they log onto facebook. it's a technology already being used by competitors like google and yahoo. does the world really need another gaming console? nintendo wii thinks it does, and
today launched its first major new system since the wii revolutionized the gaming industry in 2006. but the new wii fancies itself as far more than a traditional video game console. suzanne pratt explains. >> reporter: meet wii-u-- it's got a single game controller, but still uses your old wii remotes. after all, nintendo has sold 100 million of those alone in the u.s. wii-u will be in stores in time for the holidays. and it will have dozens of new games, including a new version of nintendo's classic "super mario brothers." and for hard core gamers, there will be a new "call of duty: black ops." still, this is the company's attempt to revive its faltering fortunes, and it aims to do that by expanding how consumers use their wii. wii-u will also include wii tv, a streaming service that allows users to watch and record television live. >> this is something we've been kicking around for a long time,
and enthusiasm only grew as we saw wii become the singular device that most people used to connect their tv to the internet. >> reporter: even though the wii tv aspect of today's announcement was a bit of a surprise, it's something xbox already does. industry observers aren't so jazzed about the wii version. >> they didn't have as many details as i would've liked about how maybe it's going to interact with your dvr, with live television, working out the legalities, especially of working with cable companies to be able to stream live tv. >> reporter: the bigger question is whether consumers need yet another way to watch content. from tablets to computers to large screen tvs, there are a multitude of options. americans spend nearly 35 hours a week watching video on screens, and another five hours using the internet on a computer. nielsen's dounia turrill says there are no signs we will turn them off.
>> i do think it's really important to stress that the shift or the fragmentation does not take away from this growing consumption of entertainment content. >> reporter: as for whether people will go out and buy the new wii? it does have a palatable price tag of 300 to 350 bucks. then again, it's got competition-- don't forget what launched yesterday. suzanne pratt, nbr, new york. >> reporter: i'm erika miller in new york. coming up tonight, i'll take you backstage to meet designer nanette lepore, whose fashions will soon be coming to a mass- market retailer. >> susie: and our friday "market monitor" guest says the fiscal cliff is the next big hurdle for investors. he's randall eley, president of the edgar j. lomax company. mark zuckerberg is famous for coming up with the idea for facebook in his dorm room. so, how do entrepreneurs and
successful companies know when they've found the next big thing? tonight's commentator says sometimes, things just click. he's frans johansson, author of the "click moment: seizing opportunity in an unpredictable world." >> many companies use strategy to get ahead when all evidence points to the fact that careful planning does not always lead to success. if we're honest with ourselves, human beings recognize that randomness and serendipity-- basically luck-- have a huge role in whether we will succeed or not. look at diane von furstenberg. the inspiration for her famous wrap dress happened when she was watching julie nixon on tv wearing a simple matching skirt and top. in that moment, she had an idea- - why not combine the ensemble into a single dress? the iconic wrap dress was born. and howard schulz changed the course of starbucks when he experienced his first café latte in milan. nike's bill bowerman got the idea for running shoes by gazing at a waffle iron.
as innovators and entrepreneurs, we have to be open to the random opportunities and serendipitous encounters that will lead to our success. these are what i call "click" moments. they are impossible to predict, and they are exciting. so, the next time you have a great idea, write it down and act on it. you may be having your next big click moment! i'm frans johansson. >> susie: just one day after mcdonald's said it would list calorie counts on its menus nationwide, new york city is cracking down on calories, too. the big apple today passed the first u.s. ban on oversized sugary drinks. starting next year, stores that sell sodas larger than 16 ounces will face a $200 fine. but there's an exception for grocery and convenience stores. the city says it's trying to help fight obesity, but opponents say the law will hurt small businesses and limit choice. with new york city taking the plunge, other cities may jump on the bandwagon. that's "nightly business report"